OIG Blog Entries from July 2014

What should the postal vehicle of the future look like? The U.S. Postal Service recently put that question to its carriers and vehicle maintenance personnel and is currently reviewing the feedback. It’s an important question because the delivery fleet is aging and the Postal Service needs to quickly replace it. In fact, our recent audit on the topic found the current fleet can only meet delivery needs through fiscal year 2017 – and that assumes no unexpected decrease in vehicle inventory or increase in the number of motorized routes.

About 142,000 long-life vehicles (LLVs) out of the 190,000-vehicle total delivery fleet are near or have exceeded their expected service life. Replacing these aging vehicles is daunting, particularly given the Postal Service’s financial constraints.

But fleet replacement isn’t just a major challenge; it’s also a big opportunity. Because the LLVs are up to 27 years old, they aren’t as fuel efficient as newer models. They also lack many of the safety features now considered standard for vehicle fleets, such as back-up cameras, front airbags, and anti-lock brakes. The next generation of vehicles can incorporate the latest safety and environmental bells and whistles, which will protect employees, cut down on fuel costs, and help the Postal Service meet its sustainability goals. Also, given the growth in packages, new vehicle designs could address the challenges of larger and irregularly shaped items.

The Postal Service has a short- and long-term vehicle fleet acquisition strategy, but we found the plan lacks details such as vehicle specifications and green technology features. Also, despite 3 years of effort, the plan has not been approved or fully funded due primarily to the Postal Service’s lack of capital. Given the urgent need to upgrade the fleet, we are encouraging the Postal Service to make some incremental purchases while formalizing a more specific long-term plan for the next generation of LLVs.

What are your thoughts on future postal vehicles? What should they look like? What safety and environmental features or other technologies would you like the Postal Service to add?

The Internet may have eaten into the U.S. Postal Service’s First-Class Mail volume and revenue, but digital devotion does bring good news, too. Package shipping is on the rise, due in large part to the ever-increasing popularity of online shopping. The Postal Service’s future could brighten considerably because of this expanding market, but is the Postal Service prepared to compete effectively in it?

Our new white paper, Package Services: Get Ready, Set, Grow!, essentially probes that question and comes up with several intriguing findings. As our auditors have noted, the Postal Service has done a good job of managing package growth in terms of mail volume and workhours. But it could do more. And it will have to, not only because UPS and FedEx are offering modernized, end-to-end products and services in response to customer demand, but also because some e-tailers, like Amazon, are expanding to offer their own shipping and delivery options.

Last year American businesses and consumers spent more than $68 billion to ship packages domestically; the Postal Service accounted for almost two-fifths of the total volume but less than one-fifth of the total revenue. That worked out to an average $3.37 of revenue per package for the Postal Service. UPS’s and FedEx’s average revenue per piece for their domestic packages were $9.39 and $9.70, respectively. The main reasons for the disparity? The Postal Service excels in lightweight and last-mile package delivery, which generate comparatively lower revenues.

The white paper says the Postal Service could increase its revenue-per-package average by adding new services that customers want. For example:

Improving tracking service and package-return service

Offering email and text alerts to parcel senders and recipients

Specifying time-windows for delivery

What do you think? How could the Postal Service expand its dominance in lightweight packages to higher-revenue packages? What package services would make you use the Postal Service more than you do now? How much online shopping do you do compared to in-store shopping?

No one can accuse the U.S. Postal Service of following the pack. It not only dismissed the strategy of pricing packages based on size as well as weight (referred to as dim weight pricing); it actually plans to lower prices for a good portion of its flagship Priority Mail products.

Few were surprised when UPS recently followed rival FedEx’s lead and announced it would price parcels based primarily on how much space they take up during transport. The new pricing scheme is expected to generate significant revenue for the two integrators. Industry observers were curious to see if the Postal Service would jump on the dim weight bandwagon, or if the agency saw a better opportunity in trying to poach customers with its simpler pricing scheme. Few predicted the Postal Service would lower prices.

Not all Priority Mail prices are going down, however. Retail prices on Priority Mail flat-rate boxes will in fact increase by 1.7 percent on average, if the Postal Regulatory Commission approves the Postal Service plan. For example, the small flat-rate box would increase 35 cents to $5.95 on September 7, if approved.

Still, small mailers could save by printing their own labels either from the Postal Service’s Click-N-Ship online offering, or from PC Postage products, permit imprints, or digital mailing systems. Using an online option moves customers into Commercial Base pricing, where they will get lower prices, on average, under the Postal Service proposal. The biggest price cuts – about 2.3 percent on average – would come in Commercial Plus prices, which require a commitment of 50,000 pieces in a year.

The Postal Service’s Priority Mail has seen solid growth over the past 3 years (25 percent in revenue). But postal officials have indicated they want to capture more business shippers and this price cut is one initiative meant to attract those commercial customers. Some observers think that, even without the proposed price break, the Postal Service would have won customers from UPS and FedEx once their prices increased. But others suggest the reduced rates might entice even more business customers to try the Postal Service.

Should the Postal Service lower its Priority Mail prices, keep them the same, or raise them slightly given an expected migration from UPS and FedEx?

We are having delivery issues with our smaller postal carrier towns. What use to take 1 day to deliver, is now taking two to three days. We have loyal customers who are thinking about dropping their subscription if service does not improve....